Market Update − September 2011
I am releasing this update early so you have a bit of warning about four important, upcoming changes to mortgage programs.
VA
The law that sets the VA Funding Fee expires on Sep 30. If Congress fails to extend the law, the VA Funding Fee for zero-down purchases will revert to 1.4% (from the current 2.15%). This will apply to any loan that closes on or after Oct 1.
We have reached out to several congressmen and senators to find out whether Congress plans to extend the higher rates, but the responses so far have been "I don't know."
Note that for borrowers putting down 5%, the fee will fall to 0.75%. For reservists and National Guard members, the fee will fall to 1.65% for zero-down purchases.
USDA Rural Development
Effective for loans guaranteed on of after Oct 1, USDA will charge both up-front mortgage insurance ("guarantee fee") and monthly mortgage insurance ("annual fee"). The current guarantee fee rate of 3.5% will drop to 2%. The new annual fee will be 0.3% of the principal balance of the loan.
Of course, USDA still has to be different. The guarantee fee calculation is still different from the calculation for all other loan programs. (The calculation is ((LoanAmount/0.98) - LoanAmount)). The annual fee calculation also is different and is based on the outstanding principal balance, meaning it will decrease each year of the loan. The initial year's fee will be based on the loan amount. For subsequent years, the annual fee will be calculated based on the scheduled amortized unpaid principal balance of the loan, not the actual unpaid principal balance. Thus, the annual fee calculation will not consider principal reduction payments.
From the homebuyer's perspective, the annual fee will be like property taxes and insurance. USDA will bill lenders for the fee, so it appears lenders will escrow for it. The fee for the initial annual fee will be due at closing, and it appears that, unlike the guarantee fee, the borrower will not be able to roll it into the loan amount (except in special situations).
FHA
Effective for FHA loans closing Oct 1 through Dec 31 and barring congressional intervention, FHA's national loan limit "ceiling" in high-cost areas is decreasing from 175% to 150% of the conforming loan limit.
The change will not affect most metropolitan areas in Texas. The loan limit in Dallas-Ft.Worth, Houston, and El Paso will remain $271,050. The limit in the Austin area will fall from $288,750 to $271,050. The limit in the San Antonio area will fall from $332,500 to $287,500. (This is for single-family homes.)
Search the limits for other counties on the HUD Web site.
HUD will release the FHA loan limits for 2012 later this fall.
Conforming (Fannie/Freddie)
The law that increased the conforming loan limits in "high cost areas" expires on Sep 30. Texas has no high cost areas, so expiration of the law will have no effect on Texas homes. The conforming limit remains $417,000. (This is for single-family homes.)
FHFA will release the conforming loan limits for 2012 later this fall.
What about interest rates?
Want to see something interesting? Take a look at the 30-year rate graph on our weekly rate sheet. (You have to register to view the sheet, but registration is free and won't fill your Inbox with spam. Or just wait for next week's rate sheet.)
Rates have fallen slowly all year and are now down around 4%. If the economy once again slips into recession, I expect rates will remain low for many months. Could they get lower? Possibly, but it's hard for them to get a whole lot lower due to technical factors in the mortgage market. I estimate that if we get to a "sky is falling" moment, 30-year rates could drop another 0.5% to 0.75%.
Multiple FHA loans
You probably know that FHA prohibits borrowers from having more than one FHA-insured mortgage at a time except in special situations. FHA has clarified that this policy includes all borrowers who are on title to a property encumbered by an FHA-insured mortgage, regardless of whether they also are obligated on the FHA-insured mortgage.
